Nordic Technology Group (OB:NTG) Is Making Moderate Use Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Nordic Technology Group AS (OB:NTG) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Nordic Technology Group

What Is Nordic Technology Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Nordic Technology Group had kr46.3m of debt in December 2023, down from kr51.9m, one year before. However, because it has a cash reserve of kr10.1m, its net debt is less, at about kr36.2m.

How Strong Is Nordic Technology Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nordic Technology Group had liabilities of kr62.6m due within 12 months and liabilities of kr28.9m due beyond that. Offsetting this, it had kr10.1m in cash and kr28.1m in receivables that were due within 12 months. So its liabilities total kr53.3m more than the combination of its cash and short-term receivables.

Since publicly traded Nordic Technology Group shares are worth a total of kr312.1m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Nordic Technology Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Nordic Technology Group made a loss at the EBIT level, and saw its revenue drop to kr27m, which is a fall of 15%. That's not what we would hope to see.

Caveat Emptor

While Nordic Technology Group's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable kr143m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled kr134m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Nordic Technology Group is showing 5 warning signs in our investment analysis , and 3 of those are a bit concerning...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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